A large body of economics literature shows that workers suffer large and persistent earnings losses after job displacement. With millions of workers displaced during the COVID-19 recession and high income inequality in the United States, it is important to understand the role that job displacement can play in driving inequalities between demographic and socioeconomic groups. In this paper, we use the Panel Study of Income Dynamics (PSID) to measure the incidence and impact of job relocation on income by race, education, and parental income level. If we focus on displacements that occurred between 1989 and 2019, we find that black workers are, on average, 67 percent more likely to be displaced than their white counterparts. Workers without a bachelor’s degree are also 67 percent more likely to be fired than those with a bachelor’s degree, and workers whose parents are in the bottom half of the income distribution are 27 percent more likely to be displaced than those with parents in the top half. Using a fixed effects model from an event study, we measure the impact of a given crowding out on annual income by worker group. We find similarly large and persistent negative income impacts across all demographic and socioeconomic groups. Overall, we’re projecting a 57 percent earnings decline for the year after crowding out and a 25 percent decline in the tenth year after crowding out.
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Kristin Butcher is Vice President and Director of Microeconomic Research at the Federal Reserve Bank of Chicago. The views expressed are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System, or their employees.
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